Amanda Cooper and Maiya Keidan
Clouds are gathering over the outlook for the oil market, as trade tensions and rising crude supply threaten to swamp demand growth, but some of the world’s most prominent energy investors are convinced the price will return to record highs.
The escalating trade war between the US and China threatens global growth. The physical markets are already showing signs of strain as unwanted crude builds on ships and crushes prices for cargoes of oil.
Aside from that, interest rates around the world are rising and the dollar is strengthening, which means emerging market oil buyers are seeing their import bill growing almost daily.
Both Opec and the International Energy Agency have warned about the risk of trade disputes to global demand growth in their most recent monthly market outlooks.
Funds have cut their bullish bets on Brent and US crude futures and options to their lowest in almost a year.
Despite all this, prominent hedge funds such as Andurand Capital and Westbeck Capital are betting oil could skyrocket to $150 a barrel from around $75 now. The main driver is expected to be upcoming US sanctions on Iran’s energy sector, which kick in in November.
“Our view is that by November 4, we will have lost between 1.3m and 1.4m barrels (of output) a day. It is a very big number. That’s based on the view that the US will allow a few temporary exception waivers. Ultimately, we could see losses from Iran exceed 2m barrels a day,” Jean-Louis Le Mee, chief executive of London-based Westbeck, said.
US president Donald Trump in May walked away from a 2015 nuclear deal between world powers and Tehran that he said was one-sided in Iran’s favour.
Pierre Andurand, who runs the €1bn Andurand Commodities Fund and who predicted the rise and subsequent crash in the oil price in 2008, responded by saying Opec’s spare capacity was at its lowest ever.
“There is going to be a real issue,” he wrote, predicting prices above $150 per barrel within two years.
“We don’t sense a great deal of engagement yet from generalist investors. A few of them are starting to look at it now,” Will Smith, Westbeck chief investment officer said.
“This is going to catch everybody by surprise. Some of the specialists are bullish — including Pierre (Andurand), ourselves and Energy Aspects,” he said.
Taking a contrarian view can be costly.
Even Andurand took a hit in 2017 when he expected the oil price to rally sharply and, instead, it wallowed around $50.